Sensex Ends Lower; IT Stocks Drag

Closing

Indian share markets ended lower after the US Federal Reserve raised interest rates and took a more hawkish tone in forecasting a slightly faster pace of tightening for the rest of the year. At the closing bell, the BSE Sensex finished lower by 139 points. While, the NSE Nifty finished down by 49 points. Meanwhile, the S&P BSE Midcap Index ended down by 0.1% while S&P BSE Small Cap Index ended up by 0.1%.

Globally, Asian stock markets finished lower today with shares in Japan leading the region. The Nikkei 225 is down 1% while Hong Kong's Hang Seng is off 0.9% and China's Shanghai Composite is lower by 0.2%. European markets are lower today with shares in London off the most. The FTSE 100 is down 0.6% while Germany's DAX is off 0.3% and France's CAC 40 is lower by 0.2%.

The rupee was trading at Rs 67.69 against the US$ in the afternoon session.

In the news from the economy. Credit rating agency, ICRA in its latest research update on Housing Finance Companies has said that the housing credit growth is likely to rise 17-19% in the financial year 2019.

It stated that primary home purchases, especially in the affordable housing segment may rise due to growing affordability for the first-time home buyer supported by government's incentives such as the Pradhan Mantri Awas Yojana (PMAY).

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It noted that with steady housing credit growth of 16% in FY18, the mortgage penetration (housing credit as a percentage of GDP) touched the double-digit mark of 10% for the first time in FY18, up from 9.5% in FY17.

The rating agency expects mortgage penetration levels to go up by another 300-500 bps over the next five years. Besides, it said that overall asset quality indicators for all housing finance firms (HFCs) remained stable with Gross NPAs of 1.1% for FY18, better than the 1.2% in December 2017 but worse than the 0.8% NPAs in FY17.

Further, it expects overall gross NPAs for HFCs to remain range-bound between 1.2 to 1.5% this year. It added that the retail home loan asset quality of HFCs is likely to be benefited by the recent Cabinet decision to treat home buyers as financial creditors.

However, the report said that gross NPAs in the sub-segment deteriorated from 3.3% in FY17 to 4.1% in FY18, driven by greater portfolio seasoning, entity-specific factors in some cases and external events such as note-ban and GST rollout, which have impacted cash flows of borrowers.

On the funding side, it said that HFCs would need to tie-up for Rs 4 trillion of incremental funds to meet the growth plans as well as replacing the maturing liabilities in FY19.

Meanwhile, as per the report, a majority of the slippages have taken place in the affordable home loan slab of upto Rs 0.2 million. The bad loan ratio in this segment shot up by 0.6% in FY17 to 10.4%. Further, HFCs bore the major brunt with the bad loan ratio jumping by 2.5% to 8.6% by the end of FY17. Surprisingly, state-run banks witnessed an improvement in asset quality with the bad loan ratio falling below 12%.

Asset Quality Pitfalls in Affordable Housing

According to India Rating and Research, affordable housing finance is estimated to be a Rs 6 trillion business opportunity by 2022 and will be the principal growth driver for home loans. Though banks with a share of more than 60% are the biggest players in the home loan market, it's the HFCs that have established their presence in niche markets, such as small ticket-size loans, and the non-salaried or self-employed segment in small towns and cities.

Therefore, HFCs are likely to be the major beneficiary of the affordable housing boom. In the long run, the ones that can balance growth with asset quality through stringent risk management will be wealth creators.

Meanwhile, in a bigger shock, Inflation based on wholesale prices shot up to a 14-month high of 4.43% in May on increasing prices of petrol and diesel as well as vegetables.

According to government data released today, inflation in food articles was at 1.6% in May 2018, as against 0.87% in the preceding month.

Inflation in vegetables climbed to 2.51% in May, while in the previous month it was -0.89%.

Inflation in 'fuel and power' basket rose sharply to 11.22% in May from 7.85% in April as prices of domestic fuel increased in line with rising global crude oil rates.

Potato inflation was at a peak of 81.9%, against 67.9% in April. Price rise in fruits was in double digits at 15.4%, while pulses saw a deflation of 21.1%.

The WPI inflation for March was revised upwards to 2.7% from the provisional estimate of 2.5%.

May inflation at 4.43% was a 14-month peak. The previous high was in March 2017, when the WPI inflation stood at 5.11%.

In its second monetary policy review for the fiscal, the Reserve Bank earlier this month hiked interest rate by 0.25% -- the first hike in more than four years -- due to growing concerns about inflation stoked by rising global crude oil prices as well as domestic price increases.

The price of Indian basket of crude surged from US$66 a barrel in April to around US$74 currently.

Data released earlier this week showed retail inflation jumped to a 4-month high of 4.87% in May on costlier food items such as fruits, vegetables and fuel. RBI mainly takes into account retail inflation data while formulating monetary policy.

Sensex Trades Weak; SBI & Adani Ports Top Losers

12:30 pm

Stock markets in India are trading lower after US Federal Reserve raised interest rates and took a more hawkish tone in forecasting a slightly faster pace of tightening for the rest of the year. While concerns about US-China trade frictions have also kept market participants on edge. Losses are largely seen in information technology stocks and PSU stocks.

The BSE Sensex is trading down by 228 points and the NSE Nifty is trading down by 74 points. Meanwhile, the BSE Mid Cap index is trading down by 0.6% while, the BSE Small Cap index is trading down by 0.3%. The rupee is trading at 67.33 to the US$.

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In the news from the engineering sector. In the latest development, Larsen & Toubro (L&T) has won orders worth Rs 13.9 billion across various business segments.

L&T Hydrocarbon Engineering (LTHE), a wholly owned subsidiary of engineering and construction major Larsen & Toubro, has won new orders in excess of Rs 7.5 billion in its Construction Services business vertical.

The business has secured an order, with a value of approximately Rs 4.5 billion, for pipelines & associated works in the southeastern region of India and received an award for additional works, worth approximately Rs 3 billion, from an existing contract.

Notably, diversification continues to help L&T negotiate and get better terms and margins for projects. Apparently, this is because it is less desperate to win orders as compared to a company which are present in only a couple of sectors. Its reputation, extensive technical prowess, and large skilled workforce have enabled L&T to command a certain premium from customers and vendors alike.

Whether, further addition to these new projects provides a cushion to its profitability will be an interesting thing to watch out for going forward.

Moving on to the news from the power sector. As per an article in a leading financial daily, Tata Power's wholly-owned subsidiary --Tata Power Renewable Energy (TPREL) has entered into a Power Purchase Agreement (PPA) with GE to provide solar rooftop solutions for six manufacturing and services sites in India.

Tata Power will install solar rooftop projects at manufacturing sites located at Durgapur in West Bengal, Pallavaram and Hosur in Tamil Nadu, multi-modal manufacturing site at Pune and upcoming factory at Marhowra in Bihar and maintenance facility at Roza in Uttar Pradesh.

The project would be executed on build-own-operate basis.

Reportedly, the installation of the solar rooftop projects will help to generate over 1 million kWh of electricity per year and will lead to an average tariff reduction of around 30%.

GE will also be able to curb the emission of over 13,000 kg of carbon dioxide per day, the reports noted.

Sensex Opens Lower; IT Stocks Lose

09:30 am

Asian share markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.1% while the Hang Seng is down 0.6%. The Nikkei 225 is trading down by 0.4%. US stocks ended a choppy session lower on Wednesday after the US Federal Reserve raised interest rates and projected a slightly faster pace of rate hikes this year.

While ICICI Bank holds 54.9% stake in the insurance company, Prudential holds 25.8%. ICICI Prudential became a publicly listed firm in September 2016, when it was valued at Rs 479.6 billion.

As per the reports, the share sale will enable ICICI Bank to boost its provision coverage ratio (PCR), which is the lowest among large banks. PCR is the proportion of funds that a bank sets aside against bad loans.

ICICI Bank's PCR excluding technical write-offs stands at 48.4%, compared to Axis Bank's 52.5% and SBI's 50.4%. Among the large banks, Bank of Baroda has the highest PCR excluding write-offs at 59%.

Moving on to the news from the pharma sector. As per an article in a leading financial daily, Lupin has announced that it has launched Tobramycin Inhalation Solution USP, in the US market.

Reportedly, Lupin had already received USFDA approval for Tobramycin Inhalation from the USFDA.

Lupins Tobramycin Inhalation Solution USP is a generic equivalent of Novartis Pharmaceuticals Corporation's Tobi, which is indicated for the management of cystic fibrosis patients with Pseudomonas aeruginosa.

As per the IQVIA data, Tobramycin Inhalation Solution USP, 300 mg/5 ml had annual sales of approximately US$99mn in the US for the year ended April 2018.

Apart from the innovator Novartis and latest entrant Lupin, there are seven players in this drug. This could become approx. US$3mn drug for Lupin assuming 10% market share and 30% price erosion, the reports noted.

Top Stocks in Action Today

TCS share price is likely to be in focus after the country's largest software services firm said that its board will consider a proposal for a buyback at the end of the week.

The company, however did not disclose the details of the buyback.

Sun Pharma share price is among the stocks to watch today the company received the establishment inspection report (EIR) for its for its critical Halol facility in Gujarat indicating a closure of inspection.

As per USFDA, after the completion of an inspection of a facility, an EIR is issued to a company detailing inspection findings.

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IPO Buzz

Government-owned engineering consultancy RITES Ltd said that it will launch its Rs 4.6 billion initial public offering (IPO). The company has set a price band of Rs 180-185 per share. The IPO is a pure offer for sale by the government, which is selling a 12% stake in the company.

The market is gearing up for a burst of activity, with at least 12 companies planning to raise more than Rs 170 billion over the next two months, after a quiet start to the June quarter.

Rhe last IPO to hit the primary market was IndoStar Capital Finance Ltd, which raised Rs 18.4 billion through its share sale in May.

Reportedly, the introduction of the new Indian accounting standards (IndAS) as one of the reasons why IPO-bound companies have not approached the market so far, this quarter.

All companies, including unlisted ones, having net worth of between Rs 2.5 billion and Rs 5 billion have to prepare their financial accounts for the year ended 31 March 2018 as per the IndAS accounting standards. Companies with net worth of Rs 5 billion or more had to implement the new standard a year earlier.

As per the reports, the pipeline in the June quarter will be very healthy. The market/IPO outlook continues to be strong and robust for the next two quarters if not the entire year.

Other companies that may launch their IPOs in the quarter include seafood exporters Devi Seafoods Ltd and Nekkanti Sea Foods Ltd. Both said they would decide on the timing of the launch after they get regulatory approval for their respective share sales.

In the first quarter of 2018, 14 companies raised a total of Rs 185.9 billion through the IPO route, a more than fourfold increase from the Rs 41.9 billion raised by five companies in the same period a year earlier.

IPO activity last year was dominated by large issuances such as HDFC Standard Life Insurance Co. Ltd, SBI Life Insurance Co. Ltd, ICICI Lombard General Insurance Co. Ltd, New India Assurance Co. Ltd and General Insurance Corp. of India Ltd, which collectively raised Rs 437.6 billion.